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Invest In Entrepreneurs Not Just Their Ideas

The blog has been quite for the last couple of weeks as we start to finalise plans for 2011. which we hope to publish very soon.As part this process we have been visiting a number of new countries. I have just spent the last 4 days in Germany and Poland talking with entrepreneurs and investors about the local scene and how we localize IBM Global Entrepreneur and the IBM Startup SmartCamp competition. We had some great discussions. It continues to amaze me how immature our understanding of entrepreneurship and risk capital is.

Despite increasing disclosure of how the venture industry works thanks to an army of bloggers this doesn’t always travel well to very market. There is a lack of research and a lot of confusion there is innovation in general and ecosystems in particular. Let’s take one example – the size of local market. Seems realistic to think that the larger the better. Poland and Germany are great examples. These countries have local markets which are of sufficient scale to allow companies to grow into profitable business. However there is a lot a downside.

Thinking Global From Day One

These markets are not big enough to create world leaders. The argument is that by focusing on the home market the team wastes a much bigger global opportunity. It sounds counter intuitive but small markets (like Ireland and Israel) force the entrepreneur has to go global from day one. If successful these opportunities will scale quicker, address larger market and make better venture capital opportunities. So what should the local entrepreneur do? Focus on the safer local market and grow the business or ignore and chase the bigger opportunity?

This debate then opens up into how ambitious should European entrepreneurs and investors be compared to the US counterparts. In the US the markets are huge, there is a wall of capital and talent, a culture tolerant of failure and deep experience of how to scale world class companies. Is it realistic to try to replicate this in northern Europe? Again the jury was out on how much of the American model we could\should adopt.

Building A Global VC Industry

This was just the start. Seems there is confusion about even the most basic questions. Is venture an asset class that can only work in certain unique locations or with certain teams? Are the issues with venture related to oversupply of capital, closure of the exit markets, lack of experienced investors, lack of supply of world class entrepreneurs, cultural restrictions, all or none of these? The macro economic rationale for the industry is understood however there are still many open questions regarding how to build an enduring global VC industry and a vibrant technology sector (especially software) in Europe. It is getting better for sure. Role models like Skype and MySQL etc help but there is no consensus on what a scalable risk capital industry looks.

There is also confusion regarding the definition of an entrepreneur. Is it someone who jumps of a cliff and figures out how to make the airplane on the way down. Or someone, who can manage and lead the team through the fog of uncertainty that surrounds new markets? Do they need to take great risks or simply be able to work with very high levels of ambiguity? Can you be a successful entrepreneur over the age of 30? And many more questions like this.

It's Really About investing In People

There was one point however that everyone agreed. It is probably the most obvious but does have large implications. It is all about investing in people. Whether it is an LP investing in a fund or a VC investing in a start-up, the one common theme that everyone could agreed on was – it was really all about great people and teams.
Now think about this for a moment. If it is all about people and building relationships and trust at a local level how can we ever build a global VC industry?
Interested to hear your thoughts and ideas……